The column is attributed to Matthew Yglesias, a blogger who studied philosophy as an undergraduate. It could be a brilliantly ironic satire of the Geithner, Holder and Breuer doctrine of immunity for banksters (which I am dubbing “GHB” for short). GHB is the “roofie” that the Obama administration gave us so the banksters could screw us repeatedly with impunity. Alternatively, and far more likely, Yglesias has written the saddest and most immoral apologia for elite white-collar crime that has yet made it into electronic bits. It takes a rerouted beginning student of philosophy, posing as a commentator on finance, to replace what should be a discussion that includes virtue ethics with a virtue-free, criminology-free, and economics-free apologia for the felons who became wealthy by costing the Nation $20 trillion and 10 million jobs.

Matthew Yglesias wrote a similar column on April 14, 2011 embracing the Geithner immunity doctrine. He titled it: “The Fraud Free Financial Crisis” – and it proves our family’s rule that it is impossible to compete with unintentional self-parody. In 2011, Yglesias thought we might be experiencing the first “Virgin Financial Crisis” – conceived without sin.

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I find it strange that neither of Yglesias’ columns on a subject that has a vital ethical component discusses the ethics of his support for giving elite bank frauds immunity from the criminal laws. Yglesias’ relevant expertise on this subject was in ethics.

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Riggs’ actions were beyond “serious.” They were criminal and they helped murderous national leaders commit murder, loot their Nations, and hide their crimes and the money they looted from U.S. and international prosecutors. Were there “serious investigations”? Not so much according to the article Yglesias relies on. The Office of the Comptroller of the Currency (OCC) failed to investigate competently for many years. Its examiner-in-chief of examining Riggs left the government and took a job with Riggs.

There were no “serious penalties” – in large part due to the weakness of the investigations. The senior officers who directed and were enriched by Riggs’ crimes were not prosecuted. Riggs became richer and more powerful through its crimes and its senior managers’ reputations were made by those illegal profits. Joseph Allbritton was inducted into the Washington Business Hall of Fame in 2002. A lower level Riggs officer was criminally investigated – but he was alleged to have embezzled from the bank.

The so-called “serious penalties” were a $25 million OCC penalty and a $16 million penalty for money laundering. At those low levels of penalties crime paid. It paid very well. The amount of funds Riggs was able to manage because it aided the looting of Equatorial Guinea was massive: $360 million. Riggs had $6.4 billion in total assets.

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I don’t expect Yglesias to understand regulation or regulators, but even without relevant expertise about regulation he should have been able to see the total lack of integrity his preferred system of immunity for elite bankster frauds would create. I cannot think of any philosophical basis for believing that the senior officers of a large bank should be allowed to become wealthy by causing their bank, unlawfully, to aid murderous Dictators loot “their” Nations. The senior officers’ actions are profoundly unethical and they set the “tone at the top” that determine a bank’s ethical culture.

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Fraud is a dynamic process and elite frauds are not random. Control frauds beget other control frauds. They are strongly criminogenic. Control frauds exist in all three major sectors – private enterprise, NGOs, and government. Government control frauds (“kleptocrats”) loot “their” Nations. Kleptocrats create and seek out other control frauds, such as Riggs Bank, that will aid their looting. Riggs Bank’s aid to the Dictators of Chile and Equatorial Guinea helped them murder and torture thousands of people. Control frauds are weapons of mass economic destruction, but many control frauds also maim and kill large numbers of people. Yglesias thinks a $46 million penalty assessed to a bank with $6.4 billion in assets – not the controlling officers – represents a “serious penalty” for hundreds of crimes that continued for over a decade and produced considerably greater income for the bank than the penalties and helped make the controlling officers wealthy.

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Yglesias does not understand that as long as you leave the fraudulent senior officers in control they have an overwhelming interest in continuing to lie about the SDIs’ financial condition. It is absolutely essential to find the true facts about the SDIs losses – an action that the Bush and Obama administration prevented at every key stage. The stress tests, for example, are carefully designed not to find existing losses on bad assets. Two factors are essential to determine the real losses. First, one must ensure that the controlling officers have strong incentives to identify the losses instead of covering them up. “Pass through” receiverships do this superbly well. Second, one must investigate problem assets. Vigorous criminal investigations greatly aid in the detection of losses that were being covered up by the fraudulent managers. Our mantra in criminology with respect to sophisticated financial frauds is that if you don’t look; you don’t find.

Yglesias writes as if “insolvency” were some purely scientific measurement that was conducted by the regulators and that we know that the SDIs were insolvent in 2008 but are solvent now. We know no such thing. Yglesias has no concept of how to conduct a rigorous financial investigation. Think about Geithner’s incentives under Yglesias’ take on “solvency.” If Geithner ordered a rigorous investigation of the SDIs’ solvency and found that several SDIs were insolvent or even badly undercapitalized, then he (1) would be transformed into a failure and (2) he would “cause” a global crisis by triggering a “catastrophe.” Under Yglesias’ own framing of Geithner’s incentives we can only conclude that Geithner’s (and the regulators’) claims that all is well at the SDIs have no credibility because of a powerful bias by the SDIs and the regulators to hide losses.

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Yglesias ends his attempt at logic by repeating his false framing of the policy options and employing euphemisms: “if saving the banks was the right thing to do, then curtailing prosecutions was the only way to execute the strategy.” I begin with the euphemism – GHB’s doctrine did not “curtail prosecutions” of SDIs and their managers for the frauds that drove the financial crisis. They prevented virtually all prosecutions of elite bank fraudsters and fraudulent banks. Indeed, they prevented virtually all prosecutions of senior officers of even non-elite banks. Worse, as we have been saying for years and as “The Untouchables” confirmed – GHB’s immunity doctrine prevented even vigorous criminal investigations of the SDIs. That denied us the facts about fraud, including how much the senior officers gained in wealth through fraud, how large were the losses their frauds caused, and how deeply did the losses drive the SDIs into insolvency. The failure to investigate and prosecute also minimized any reputational injury to the frauds – maximizing their ability to defraud us in the future. I’ve already pointed the deliberate abuse of logic exemplified by Yglesias’ false claim that preventing “prosecutions” was “the only way” of “saving the banks.” We can prosecute the SDI officers who directed the control frauds and grew wealthy through those frauds without having to prosecute the banks.

But perhaps I am being too fair to Yglesias. Perhaps he is saying that if we successfully prosecuted the SDIs’ controlling officers for using the SDIs as “weapons” to defraud the SDIs’ customers, creditors, and shareholders then we would inherently establish that the SDIs were liable through civil suits for the massive damages their frauds caused. (A corporation is normally liable for the wrongs of its officers committed in their capacity as officers.) Indeed, successful prosecutions and guilty pleas could establish “collateral estoppel” and allow the victims to easily win their civil cases against the SDIs. The damages in these civil suits should be extraordinary because fraud allows the recovery of punitive damages and the SDIs committed so many crimes that treble damages are available against the SDIs through civil RICO suits. Perhaps Yglesias, like GHB, believes that it is essential that we not be allowed to hold the officers accountable criminally and that we must act to prevent the victims of the SDIs’ frauds from receiving more than token recompense from the SDIs lest we fail to “save the banks” (by which he really means “save the SDIs”). Does Yglesias want the U.S. to add to the injury to the victims and to provide further aid and comfort to the elite fraudsters by declaring immunity from prosecution for the officers who grew rich through fraud?

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